“In the past year, the ability to monetize shareholder ignorance
has never been greater.”
–Warren Buffett
“The most notable contribution of computers to the recent
growth in productivity has been in the manufacturing of more
computers.”
–Jim Grant
After all I”ve said the past few weeks I find it increasingly
difficult to avoid repeating myself ad nauseum. But, rather than
telling you about my return to running this week, I”ll take another
stab at being truly refreshing…and gloomy.
Let”s face it folks. It”s war. Growth vs. Value. But it”s not even
“growth,” rather it”s become more “momentum” vs. value. And
the momentum players clearly won the last few years. Big time.
But I strongly take issue with those who label investors like
Buffett dinosaurs and has-beens. Geezuz. Number one, how can
you say anything bad about Warren Buffett?!
An author I have tremendous respect for (and thus will go
nameless) wrote a piece this week which basically said that in
order to be a success on Wall Street these days you have to be
young because old-timers can”t possibly get it. He blasts the
accumulation of experience.
Hey, we”re not talking the final playing days of Willie Mays here,
when any fan knew he should have retired two years before he
actually did. We”re talking investing and the application of a tried
and true discipline (not the helter-skelter of some hedge fund
managers). More often than not, for giants like Buffett their
discipline worked before and will work again.
And the “ignorance” Buffett speaks of was never more in
evidence than this past week. Why wouldn”t you know it? I
began to hear an echo. What if the Fed really keeps raising
interest rates? What would that do to the economy and corporate
profits?
Now, of course, not everyone felt this way or the Dow would
have dropped 1,000 points instead of the 156 it did end up losing
(to the 10577 level). And the Nasdaq would have lost far more
than 43 points (3817). But it seemed as if enough old-timers
grabbed their younger brethren by the neck (Bobby Knight style)
to at least get them to listen for a minute or two.
As I said last week, it”s not as important whether the Federal
Reserve raises rates 25 or 50 basis points on May 16 as it is how
much longer, and more, they continue to hike rates thereafter?
From the latest economic data the economy continues to surge…
*And at this point in the commentary, it is my patriotic duty to
acknowledge that we live in truly prosperous times, even if, as
one friend said, I am one of the few Americans personally losing
money while everyone else cashes in. Now back to our regularly
scheduled programming…
…but with increasing signs of wage pressures, the Federal
Reserve is far from finished. And the New Age myth that the
level of interest rates didn”t matter when one valued technology
stocks is about to be smashed. Yes, experience will win out.
Incidentally, the Dow Jones has been treading water for almost a
year now. And, despite what some may say, the Dow is
representative of the real economy. Ergo, cash (earning over
5.5%) is not trash.
And two final notes. There are some well-known bulls (like the
one who pops up on CNBC 20 minutes before the close) who say
that once the Fed is finished raising rates, it will immediately be
off to the races. Oh, were it that easy.
And lastly, any experienced hand will tell you that when a style
change is instituted, like for a mutual fund, the old is probably
about to come back into favor.
The New York Times Floyd Norris had a piece on Friday
detailing the changes at one large fund complex, where excellent
value managers (with whom I am personally very familiar) are
being shunted aside for a more turbo-charged approach.
Oh well, maybe these momentum / growth players will know when
to get out of Cisco, Sun and Oracle (all still trading at
75-100 Xs 2001 estimated earnings). But, as the patron saint
of all things bearish, Jim Grant, comments:
“The trouble with high technology is that there”s usually a higher
technology under development somewhere. No sooner does the
applause for the latest miraculous invention die down than an
even better technology pushes it off the stage and into the mosh
pits. For this reason, seasoned investors refrain from overpaying
for stocks.”
More Street Bytes
–Bonds took it on the chin as there were increasing fears that the
Fed was about to raise rates half a point. Actually, such an
increase is now largely reflected in the yields on the Treasury
curve:
1-yr. 6.24% 2-yr. 6.82% 10-yr. 6.50% 30-yr. 6.18%
*The 10-yr. rose from the 6.22% level just one week earlier.
–Volume on the exchanges is abysmal. Sitting in my office I”m
increasingly tempted to turn on some game shows. I have
resisted thus far. I don”t know how much longer I can hold out.
–Speaking of my office, and the coming real estate crash, I work
out of a very modest, old building which needs a ton of work.
I saw yesterday that it is officially on the market for $2.4
million. Trust me, I thought it would be listed at around $1
million. Ti-ny bub-bles…
–Americans were polled as to the greatest threat to their financial
security. Inflation was picked #1 by 33%, 20% thought the chief
threat was a stock market decline, and another 20% chose rising
interest rates.
Actually, it should have read 73% know that rising inflation leads
to rising interest rates which, in most cases, leads to a significant
stock market decline.
–The latest sentiment readings of newsletter writers shows 47.6%
bullish and 31.4% bearish (as I list each week below). The
Investors Intelligence figures have been largely worthless over the
past few years. While the bullish figure is the lowest in some
time, it probably needs to get below 40% before I would start to
look at it as the true contrarian indicator it used to be.
Conversely, a “bear” reading above 38% may begin to sway
my sentiment as well. But right now, monetary policy is
paramount.
–The new partnership between the London and Frankfurt stock
exchanges is truly significant. London will be the site for trading
of old-line, blue chip issues while Frankfurt will be the market for
new, high-tech stocks. The Nasdaq has also agreed to form an
alliance with the eventual goal of a total link up, meaning 24-hour
trading is just around the corner. Proponents say this would offer
more opportunities for the average investor. I say that unless you
have substantial liquidity, a lack thereof being a serious issue in
today”s existing after-hours markets, then you will just have more
opportunities for investors to get scalped. But then again, it”s
their money so why should I give a damn?
Separately, the European Central Bank seems unwilling to defend
the euro as it continues to slide. I still believe it”s not a big issue,
yet.
–I said last week I would comment further on the Microsoft
ruling. Well, first off, I feel that the decision will be overturned
and the American consumer will not be hurt by that. All you need
to do is take a look at the “Love Bug” computer virus, which
exploited Microsoft”s insecure Outlook Express program, to
know that the door is open for competition. I also share the view
of a majority of Americans…Microsoft is “an American symbol of
technological excellence and wealth creation.” As for the stock
itself, there is no reason to buy it. It will take time for a new
bull case to develop.
–Sorry, but I can”t get too worked up over the Time Warner /
Disney flap. The FCC found Time Warner to be at fault. True,
we need to watch some of these developing monopolies but 1)
laws are already on the books ensuring free access to major
networks and 2) the U.S. consumer will not be denied. We
normally get what we ask for, i.e., generally lousy programming.
–Memo to C. Michael Armstrong of AT&T. Hey, nice job, eh?
And what did you do at Hughes that so interested the Chinese?
International
Russia: Vladimir Putin is sworn in as President on Sunday. He
will move quickly to form a cabinet and undoubtedly will carve
out an increasing role in national affairs for his KGB buddies.
What would be encouraging is a sign that Putin is willing to
confront the oligarchs who control all facets of Russian business.
Without breaking their hold, real reform is impossible.
A U.S. congressional panel said that Russia has taken a
“significant step backward” in terms of religious freedom. And
separately, I read where 120 journalists have been killed in the
country since the end of 1991. Kind of makes one think twice
about reporting the truth, doesn”t it?
On the arms control front, I”m not the only one who believes it”s
an important issue. One observer of a U.N. conference on the
subject last week said the “participants thought the issues were a
bit more important than, say, whether a little Cuban boy got to
see his daddy.” The U.S. is isolated on the issue of missile
defense. Let”s see if we stand firm. [At the conference,
Secretary of State Albright boasted that nuclear stockpiles have
been reduced 60% on Clinton”s watch. She needed to be
reminded that this is a result of merely implementing agreements
made under Republican leaders. But look for Gore to throw out
the stat to unsuspecting crowds this fall.]
China: Congressman Frank Wolf (R-Va.) wrote a blistering op-ed
piece this week on the vote for permanent normalized trade
relations with China, a precursor to full WTO membership. “I
recently received a troubling briefing from the U.S. intelligence
community about the national security threat that China
poses…The American people have a right to know about (this
threat) and the potential danger it poses…Americans deserve to
know the extent of the espionage campaign that is directed
against the U.S. and the high-tech community. They also need to
know the threat China poses through cyber-terrorism.”
The China vote takes place in about two weeks and the Clinton
administration is trying all kinds of steps (like the establishment of
a unique human rights panel to monitor events there) as a
precondition for a ”yes” vote. I”m with the administration on this
one (Wolf”s comments notwithstanding) but I would add another
clause. Come clean on the ”96 campaign and Chinese influence.
[Copyright: DreamWorks Inc.]
Finally, the Chinese government has been experimenting with a
new economic policy…extra vacation days for its workers.
National holidays are being established in an attempt to stimulate
domestic spending. I”m sure they are open to suggestions. How
about ”Fortune Cookie Day?” Everyone gets a cookie and the
slip tells the recipient what they have to buy that day, or face jail
time.
Africa: The U.S. State Department has now declared AIDS to be
a threat to our national security. This is not a stretch, particularly
if you have read my comments over the past six months. When
25% of the adult populations in Zimbabwe and Botswana are
infected with HIV or suffering from AIDS, it is easy to see where
the disease can lead to the toppling of governments with more
ethnic strife then you already have too much of. There simply are
no resources to combat it in the impacted nations. The life
expectancy for a newborn in much of Africa is now under 40.
The State Department further points out that “infectious disease-
related trade embargoes and restrictions on travel and
immigration also will cause frictions among and with key trading
partners and other selected states.”
On this last point there was one very positive development.
Congress finally approved a bill removing tariffs on many textile
products from Africa (previously a pet peeve of mine) which at
least gives a chance for tens of thousands of Africans to earn a
living.
Elsewhere, however, the news on the continent went from bad to
worse. Zimbabwe”s Robert Mugabe canceled parliamentary
elections for an indeterminate time as the death toll rose for white
farmers and opposition party members.
In the nation of Sierra Leone, another hell-hole, at last count 7
U.N. peacekeepers had been killed with another 300 held hostage
by guerrilla forces involved in this country”s civil war. An
incredible embarrassment for U.N. Secretary General Kofi Annan
and his peace efforts.
And in South Africa, the national airlines (SAA) is under
investigation for possible drug trafficking and prostitution by
members of the cabin crew. The country has become an
increasingly large transit point for hard drugs into the West.
Iran: A second key round of parliamentary elections was held
Friday. During the week the moderate President Khatami showed
some courage in taking on the hard-line clerics as they attempt to
further muzzle the reform press.
And two other items of note in the land of fancy carpets. First,
there have been an increasing number of mortar attacks on the
capitals of both Iran and Iraq. Neither government seems to be
discouraging the action by rebels from both sides. Second, the
showtrial of 13 Jews accused of spying for Israel continued as
confessions have now been manufactured (?) for three of the
accused. As they have been in prison for a year, with little
outside support, there is no way of knowing if the confessions
were coerced. Israel continues to maintain the charges are
“ludicrous.”
Austria: Joerg Haider has resigned as head of the Freedom Party
(as expected). He said he doesn”t want to be the focal point of
the party”s reform efforts. Of course he can crank out the PR
machine any time he wants to. Eventually, he will run for the
Austrian chancellorship. Haider has an increasing following in the
ex-Soviet satellites of Eastern Europe. Western Europe”s attacks
on him have created a backlash of sorts in the East, ironic since
Haider has railed against immigration from many of these very
same countries.
Middle East: One wonders how lasting peace will ever be
achieved. For example, columnist David Harris, in a report
labeled “Peace and Poison in the Middle East,” writes that Syrian
textbooks for grades 4 to 11 are “replete with anti-Semitism,
holocaust denial, demonization of Israel and an open call to
exterminate Jews from the earth.” Arab affairs expert Fouad
Ajami comments that “diplomatic accommodation (could) be the
order of the day, but the intellectual class was given a green light
to agitate against the peace.”
Philippines: The threat of spreading terrorism is beginning to do a
number on the economy. The army has had a tough time dealing
with the burgeoning hostage crises as Islamic rebels (seeking an
independent homeland) continue to grab whoever is available for
ransom. At least 4 of the hostages have reportedly been killed,
the citizens of the impacted areas are afraid to leave their homes
and flights to the various islands effected have been canceled.
India / Pakistan: Shelling resumed in the disputed region of
Kashmir (actually, it never really ends) and 15 were killed.
Separately, the government of Sri Lanka asked India for help in
evacuating up to 40,000 of its soldiers who have been surrounded
by the separatist Tamil rebels near the nation”s second-largest city
of Jaffna. India has refused. Little Bighorn II coming to a
theatre near you.
Brazil: Another peasant land-grab is taking place (like that in
Zimbabwe). Brazil has the worst disparity between rich and poor
when it comes to land distribution and there is increasing turmoil.
This is why it”s always smart to own a condominium or rent…no
need to worry about peasants pillaging your property.
Puerto Rico: The Feds did a commendable job in removing the
protesters from the island of Vieques. But, at the same time,
some Puerto Ricans need to understand who butters their bread…
we do.
Politics
According to the latest NBC / Wall Street Journal poll, Bush
leads Gore, nationally, 46-41. Among women it”s now a dead
heat while Independents favor Bush 43-32.
Bush has begun to roll out bits of his plan to overhaul Social
Security, one provision being the ability of individuals to put 2%
of their payroll taxes into an individual retirement account. I
differ from most of my Wall Street buddies in thinking that this is
a bad idea but I”d like to see exactly how he plans to accomplish
it (i.e., is it totally free choice or selected mutual funds?)
And, aside from poll numbers, Gore seems to be suffering from a
new malady, “Clinton nostalgia.” I, and others of my persuasion,
long talked of “Clinton fatigue” as the year wore on. Of course
the new disease (I truly hope you don”t have it, if so, my
sympathies) is spread by our ever-compliant media. They were
falling all over themselves this week after the Clinton video was
shown at the correspondents dinner last weekend. “Wasn”t he
wonderful?” “He could really be a comedian when he leaves
office, a talk-show host, an actor.”
Back to Gore”s problem. Do you know that a Harris poll of
Democrats has 43% preferring a third Clinton term compared to
39% for Gore? Goodness gracious.
I mentioned last week that the reason why I couldn”t give a damn
about Elian Whatshizname is because I cared more about, as
political scientist Michael Barone put it, “The (overall) contempt,
not respect, for the law” exhibited by this White House.
You”re beginning to hear more now about the e-mail issue. Of
course I”m not holding my breath. The White House is claiming a
non-existent executive privilege. It simply smacks of obstruction
of justice.
All I want is what I think a majority of Americans desire, a
President who respects the office. When I hear a promo for the
tabloid show “Extra” proclaim, “Next, a behind the scenes look
on the making of the Clinton video,” I find it unsettling.
Turning to the New York Senate race, Hillary has a 46-44 lead
over Rudy (62-29 in New York City). Giuliani seemed enthused
about staying in the race after his prostate cancer disclosure. But
of more interest to New Yorkers is the gossip floating around that
Rudy is squiring a 49-year-old divorcee. As most of you know,
Rudy”s wife, former anchorwoman and now actress, Donna
Hanover, hasn”t been seen at his side in years.
So, let”s see. Hillary doesn”t sleep with Bill and Rudy doesn”t
sleep with Donna. Rudy may, instead, be with this other woman
and Hillary is probably with…oh, forget it. Or rather, as my
buddy Johnny Mac put it, why doesn”t Bill just date Donna?
Then we”d at least partially close the circle.
Random Musings
–It hasn”t been getting any play here but our Aussie friends are
dealing with a plague of biblical proportion. Locusts numbering
around 100 billion now threaten the wine-growing region.
–Senator Bob Kerrey, Medal of Honor winner and a great
Democrat I”d have no problem supporting for President some
day:
“Was the Vietnam War worth it? When I came home in 1969,
and for many years afterward, I did not believe it was. Today,
with the passage of time and the experience of seeing both the
benefits of freedom won by our sacrifice and the human
destruction done by dictatorships, I believe the cause was just and
the sacrifice not in vain.”
–“The digital age is moving us toward a new way of living, but it
hasn”t appeared to revolutionize the way we buy things quite as
some had hoped.” [Rodes Fishburne, Forbes]
–And speaking of the digital age, this week Wells Fargo launched
a new ATM where you can not only get cash but also movie
reviews and news headlines. What a freakin” nightmare.
“Hey, hurry up jerk! Read the news on your own time.”
–Commenting on reports of space junk landing on South African
farms, a NASA official said, “Although no one has been hurt by
these objects in the last 40 years, the U.S. government would
compensate anyone who is struck by these objects.” Now I ain”t
no Dr. Bortrum but something tells me the space junk doesn”t just
float down in a parachute.
–With the recently discovered cracks in the ocean floor off the
U.S. East Coast, scientists are worried that the Virginia area, in
particular, could be hit by a tidal wave. I promise that this
hypothetical will comprise no more than 40% of my stock market
indicators.
–The following is sensitive but somebody has to talk about it.
You may be familiar with the racial profiling issue involving state
troopers in my home state of New Jersey. Well, this week a
critical report was released, one year after reforms were to start
taking place, and the new numbers show that 65% of motorists
arrested were still minorities (versus 77% earlier) while 40% of
those “stopped” were also minorities (versus an overall minority
population of 20% in the state). Unfortunately, the troopers
continue to be made out to be bigots. Geezuz, just tell the truth.
Most of the big drug dealers in America are minorities! Ergo…
–I have to hand it to NBC”s “Today Show.” Their “Where in the
World is Matt?” segments are terrific. And I just have to add,
having spent a week in Iceland (Friday”s destination for Matt
Lauer) myself, you really should go there. What a fascinating
place. [And I”ll never forget the guy who snuck me on the
NATO base…cool.]
–Supporters of the asylum request for Elian Gonzalez claim the
boy “has a mental age of 11.” I guess that means he was
receiving a pretty good education in Cuba, eh?
–I have decided it”s time for the U.S. to invade Japan. The
reason? Pokemon and Game Boy. These devices are destroying
some of our finest male youth. Case in point, my 6- year-old
nephew. Hey Dougie, if you don”t put that stupid thing down I”m
cutting off your college fund! [He won”t listen to me.
Back to you, Bro.]
–Researchers have discovered that baby talk, or gibberish, is the
same around the world, producing identical sounds and patterns
in their early speech. My educated guess as to what the kids are
actually saying when they go “Ba Ba Ba” is “Markets overvalued
worldwide.” [They aren”t capable of complete sentences at this
stage, you know. Plus, we haven”t been listening to this stirring
message since, until now, we didn”t know what they were
saying.]
–Finally, Cardinal O”Connor of New York was a man of principle
and character who, regardless of your personal beliefs,
commanded the respect of all. My friend Phil passed along a
message last night from his rabbi, Fred Guttman. It read in part…
“We respected the strength of his convictions and his devotion to
his beliefs even in moments when our opinions diverged. May his
memory continue to bless and inspire Jews and Christians as we
commit ourselves to work, together, to build a more
compassionate community.”
Cardinal O”Connor wanted his epitaph to read simply, “He was a
good priest.” And he will also be forever known as a man who
believed in the dignity of all human life, regardless of class or
status. Words to remember as most of us benefit from these
prosperous times.
Gold closed at $280 [Share prices are stirring…]
Nymex Crude Oil, $27.29 [I”m still loaded to the gills in this
sector]
Returns for the week, 5/1-5/5
Dow Jones -1.5%
S&P 500 -1.4%
S&P Midcap +0.8%
Russell 2000 +1.3%
Nasdaq -1.1%
Returns for the period, 1/1/00-5/5/00
Dow Jones -8.0%
S&P 500 -2.5%
S&P Midcap +9.2%
Russell 2000 +1.6%
Nasdaq -6.2%
Bulls 47.6%
Bears 31.4% [Source: Investors Intelligence]
*Check out my “Wall Street History” pieces on the breakup of
Standard Oil. They are revealing.
Note: You may have noticed a subtle change to the site this
week. We found that when we revamped StocksandNews, some
older browser software had trouble keeping up. I would strongly
urge you to update your software when you get the chance. It
does make a difference in the performance of many of the sites
that you may visit. So, instead of the lightning speed some of
you experienced, we had to slow it down a second. When I”m
comfortable that no one is getting shut out, I”ll add back the
horsepower.
Thanks for your understanding and support.
Brian Trumbore
